GBP flows: GBP gains after strong retail sales

UK retail sales continued their improvement, with the 3m/3m trend now above 1% for the first time since the post-pandemic recovery. While some of the strength might have been weather related due to late summer sales, the data supports the more positive narrative around UK growth that has developed this year. EUR/GBP is testing the July low of 0.8382, which was the lowest since August 2022. Nevertheless, we remain wary of GBP strength, which has come in spite of little movement in yield spreads and has taken the pound to its highest level in real terms since before the Brexit referendum in 2016, both against the EUR and on a (narrow) effective basis. While the improvement in retail sales is encouraging, it is still not particularly strong by longer historic standards, and the recent growth numbers have suggested a slowdown from H1. We would therefore be wary of looking for much extension of GBP strength, although a break to new lows for the year looks likely.